The Delhi High Court, on Friday, delivered a split verdict on the question of levy of entertainment tax on sponsorship.
The Court was hearing a batch of 22 Petitions challenging an amendment made to the Delhi Entertainment and Betting Tax Act which taxes payments made for admission to a place of entertainment through Section 6(1). The definition of 'payment for admission' under Section 2(m) of the Act includes any payment "connected with an entertainment, which a person is required to make... as a condition of attending, or continuing to attend the entertainment".
The impugned amendment to Section 2(m) has the effect of including sponsorship amounts under the purview of 'payment for admission'. Further, the amendments were introduced retrospectively from April, 1998. The Petitioners had now challenged exaction of these amounts as tax and had sought refund of the amount paid under protest.
They had contended that sponsorship amounts received by them are utilized for organizing the events and cannot be classified as 'payment for admission'. They had pointed out that when a sponsor, through an agreement, funds their event, it is only for the purpose of organizing the event, and that "it cannot be that the sponsor is being entertained".
They had further pointed out that the State was empowered to impose taxes on “luxuries including entertainment” under Entry 62 of list II. They, then, allege that the impugned amendment was ultra vires the Constitution of India as the Petitioners merely assist in organization of such events and are not the audience or beneficiaries of the entertainment offered.
Justice S. Ravindra Bhat's opinion
Justice Bhat allowed the Petitions, ruling that the amendment does not result in a valid levy of entertainment tax as mere amendment to the definition of 'payment for admission' cannot introduce such levy. He opined that such tax can be imposed only by amending the charging Section, i.e. Section 6(1) of the Act or by introducing a new charging section. The amendment was, therefore, declared as being contrary to Articles 14 and 265 of the Constitution of India.
Justice Bhat also opined that even if the amendment is to be held to be valid, its retrospective nature would nevertheless run contrary to Articles 14 and 265 of the Constitution of India.
He explained, "The argument that sponsored events and sponsorship per se were covered by the un-amended Act, is therefore, insubstantial and rejected. The sequitur is that the amendment introduced a new element. By itself, in the absence of change to the enacting part creating a levy, (as discussed previously) the addition of the two impugned explanation, with retrospective effect cannot result in a valid impost; such impost cannot be retrospective in character. It is therefore held that the amendment is not clarificatory; it is also of no consequence given that there is no amendment to the charging section. Nor has a fresh charging provision been introduced introducing a fresh levy. In view of the opinion expressed as to the effect of the amendment, it is held that the retrospectivity assigned to it, is of no consequence.
However, it is also held that as an amending enactment, which sought to introduce a new levy, which did not exist earlier, the impugned notification would be unreasonable because it would - were it indeed operative - impose onerous obligations upon transactions and those sought to be covered by it, for periods when it was not in force. Those ostensibly covered by it, would have to provision for demands which could not have been levied, because those obligations did not exist."
The amounts collected from the Petitioners were, thereby, directed to be refunded to them with an interest of 7% per annum from the day of payment, within 8 weeks.
Justice Deepa Sharma's opinion
Justice Sharma upheld the amendment, observing that organizers of a sponsored entertainment event cannot be allowed to escape their liability to pay taxes simply because instead of receiving money in cash, they receive benefits in the form of services, benefits and/or goods.
The Court observed that Form 6, as prescribed by the Delhi Entertainment and Betting Tax Rules, 1997, requires organizers of non-ticketed events to disclose the name of sponsors and advertiser and the amount received from them. This, it ruled, meant that the impugned amendment does not levy any new taxes.
Justice Sharma opined, "The Act prohibits the entry to any place of entertainment except as provided in Sections 9 and 10 of the Act and Section 2(m) of the Act defines payment for admission which definition is inclusive. The object and purpose of the Legislature for making the definition of Section 2(m) of the Act so broad and inclusive is to defeat indigenous methods adopted to avoid tax. The Hon'ble Supreme Court had also acknowledged this attitude of organizers that in order to avoid taxes, they tactfully invent new methods...
... I thus conclude that sponsorship amounts are payments for entry to a place of entertainment if it fulfills other requirements of Section 2(m) of the Act. Similarly, putting up advertisements, display of product/brand name etc. in place of entertainment is admission to an entertainment in terms of Section 2(aa) of the Act. The impugned amendment, whereby Explanation 2 is added retrospectively, is explanatory and clarificatory in nature and does not add any new regime of taxation and the Act has sufficient machinery to levy taxes."